Rising Star Buy: Fast Retailing

Here's why we're buying.

During my recent trip to Korea, I learned a number of things, not the least of which is that Korean BBQ is delicious, whereas ammonia-laced rotted stingray is much less so.

Since returning, I've been pondering a number of investment ideas of companies I encountered there. One standout is Japan-based Fast Retailing (OTC: FRCOY.PK), the apparel company behind a number of clothing brands, including Uniqlo.

Fast Retailing's story is fairly straightforward. Its massive, four-story Uniqlo stores were busy and, in my opinion, carried awesome clothes. (Full disclosure: I'm wearing a red Uniqlo sweatshirt in the second testimonial of our April Fools' joke this year.) Average annual growth has been impressive -- 14% for both sales and net income over the past three years despite the economic downturn. A return on equity of 17% despite carrying almost no debt demonstrates the efficiency of Fast Retailing's stores.

For comparison, here are those figures for a few of its closest peers and competitors.

Company

3-Year Sales Growth

Return on Equity

Fast Retailing

14%

17%

H&M

10%

39%

The Gap(NYSE: GPS)

(2%)

27%

American Apparel

11%

(74%)

Data from Capital IQ, a division of Standard & Poor's.

In addition to a goal of opening 300 stores each year in Asia, the company plans to open 200 Uniqlo stores in the United States by 2020. Currently it operates only one flagship Uniqlo store, located in New York (which seems somewhat appropriate, given the tendency for their pants to run skinny). The overall goal, according to Bloomberg, is for Fast Retailing to increase sales sixfold over the next decade.